30 sec brief
Budgeting always seems great in theory. You may begin the month feeling optimistic about your debt payoff or savings goals. By the end, you wonder where all your hard-earned dollars actually went. Budgets often fail when you lack awareness about your spending. If you don’t know exactly how much is coming in vs. going out,…
Budgeting always seems great in theory. You may begin the month feeling optimistic about your debt payoff or savings goals. By the end, you wonder where all your hard-earned dollars actually went. Budgets often fail when you lack awareness about your spending.
If you don’t know exactly how much is coming in vs. going out, it’s difficult for spending to align with your goals. If you keep repeating the same cycle—and beating yourself up for it—it may be time for a different approach. Here’s a fool-proof way to create a budget you will actually follow.
Pick the right budgeting tool to stay on track
Tracking your spending is the cornerstone of any successful budget. If spreadsheets aren’t your style, consider a budgeting app to do the heavy lifting. Some apps are free. Others offer a limited free trial. What’s most important is finding an app you are willing to stick with. Some of the most popular budgeting apps include:
- You Need a Budget (YNAB)
How to create your budget
Budgeting is a simple concept: spend less than you earn. But if you aren’t clear on how much you are earning vs. spending, it can be difficult to achieve. You can start building awareness with these four basic steps.
- Add up your monthly income. The first step is a breeze. If you work as a full-time employee, add up your monthly paychecks. For contract workers or freelancers, you will need to subtract taxes first.
- Track your monthly expenses. Start by tracking every cent you spend. Fixed expenses like rent, car payments, or your cell phone bill may be the same every month. Variable expenses like your utility bills are a little trickier. And discretionary spending—like going out to eat or shopping—may take a few months to nail down. Once you know your basic monthly expenses, it may easy to craft a rough outline.
- Build in monthly savings. On top of your monthly expenses, build in monthly savings. You may already be saving with a 401(k), but you should consider other savings goals, too. Start working on an emergency fund of three to six months of expenses. You may also decide to create separate savings accounts for buying a home, going back to school, or having a child.
- Make sure there is a buffer. In a perfect world, you would never go over your monthly budget—but life happens. By building in a small buffer, last-minute expenses will be less likely to throw your entire budget off track.
How to stay on track with your budget
Once you have had a taste of budgeting success, it may be tempting to stop tracking for a while. But getting lazy may sabotage your hard work. These are the best ways to stay the course:
- Rely on the power of automation. It’s easy to bypass saving when other “priorities” arise. Make it effortless by automating savings through your company’s HR department or the bank.
- Budget for bigger one-time expenses monthly. Nothing sinks a good budget faster than bigger one-time expenses. As they happen, start budgeting for them monthly. Save monthly for things like annual car insurance, quarterly pest control, or household supplies.
- Experiment with cash-only. If you struggle with overspending at restaurants or at the mall, stick with cash. Without a credit or debit card at your fingertips, it may be easier to avoid impulsive spending.
- Build in some wiggle room. Everyone wants to be better at budgeting, but it takes practice. In the meantime, add a buffer for any missteps. As you become a savvier spender, you may find you no longer need it.
It’s never too late to get on track with budgeting
Paying off debt or saving more money rarely happens by accident. Tracking your income and expenses is the first step—and it gets easier from there. Seeing your progress over time may be motivating. By monitoring your spending, you may notice there is a lot more money for the things you value most.
About the author
We are HSA Experts! Lively is a Health Savings Account (HSA) platform for employers and individuals. A 401(k) for healthcare.